The economic conditions within China are concerning enough to prompt a downward revision in its credit rating outlook. There are worries that South Korea’s key industries, which heavily depend on Chinese exports, might encounter difficulties.
China’s actions, like controlling the exports of elements, gallium, germanium, and graphite, could worsen the economic challenges for South Korea, which is already caught in a slow-growth situation.
On the 6th, according to industry reports, Moody’s, the international credit rating agency, downgraded China’s national credit rating outlook from stable to negative the day before. Although China is expected to achieve a 5% GDP growth target this year, Moody’s gave a less optimistic outlook for the coming years, projecting an average of 4.0% in 2023 and 2024 and a lower 3.8% from 2026 to 2030.
Moody’s lowered China’s credit rating outlook mainly because of the significant impact of real estate problems. They predict that the economic slowdown, caused by a slump in the property market, will worsen the debt burden on local governments and state-owned companies. If China’s economy struggles, it could also affect key industries in South Korea, like the semiconductor sector, which is slowly recovering. Even though China’s importance in our total exports is decreasing, it’s still a major trading partner, posing challenges for the South Korean economy.
According to data from the Korea International Trade Association, semiconductor exports amounted to $29.3 billion from January to October this year, making up 28.6% of total exports. The association explains that the overall export decline and increased trade deficits are due to reduced semiconductor shipments to China.
Recently, there has been a crisis in the Chinese supply chain, causing delays in exporting key vehicle components. This has revived a “component shortage crisis” after two years. China’s ongoing export controls on crucial materials like gallium, germanium, and graphite, essential for South Korea’s major industries, worsen the overall economic challenges.
Experts emphasize the immediate need for practical solutions to cope with China’s economic slowdown and resource weaponization measures. They recommend formulating and implementing strategies for export diversification, including tapping into stable markets and strengthening trade diplomacy with emerging nations.
Joo Won, head of the economic research department at Hyundai Economic Research Institute, stated, “The downgrade of China’s credit rating outlook to negative is ultimately proving that the economic situation is not good.” He added, “If exports to China do not improve, we need to put more effort into diversification.”
Choi Sang Mok, the nominee for Deputy Prime Minister and Minister of Strategy and Finance, also said the previous day, “Although our dependence on China has risen, our competitive relationship has increased. We need strategic considerations for the global chain (value chain) along with strengthening our competitiveness.”
By. Seong Suh Kim
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